1. PART 1- Project objectives and overall research approach - (1000 words)
1.1. Reasons for choosing the project topic area and the particular
organisation that is the focus of the research work
My project topic is “An organization’s budgetary control system and its links
with performance management and decision making” and my project title is
“An evaluation of the budgetary control system of Sur Construction Plc
(Sur) and its support to the company’s performance management and
decision making processes”.
I selected this topic for the following reasons which make me feel more
comfortable with and confident to successfully complete this research
compared to the other ones.
 A subject matter, concerning my company, in which I wanted to see
improvement
 It is within my area of expertise
 I found sufficient amount of relevant literature
 My employer found the topic relevant and promised to provide all the
necessary support including access to relevant data and use of office
facilities for this purpose
 It gives me the opportunity to demonstrate IT skill
Besides I have observed that in Sur this issue is not given due attention. I
believe that by conducting the research I may come out with relevant findings
that might help my company improve its budgetary practices. Similar
companies in my country (Ethiopia) may also find the work useful.
The focus organisation:
The focus organisation is “Sur Construction Plc”. I selected Sur because:
 I have secured permission of access to relevant information and full support
in material, financial and moral from my employer to undertake the research
 I could save time and cost of securing relevant information from other
companies and allow me devote more time on analysis of data collected
 It would help me demonstrate my capability of doing research relevant to my
company and thus promote myself
1.2. Project objectives and research questions
The objectives of the research are:
 To evaluate the budgetary control system of Sur for adequacy in its design
and implementation
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2.  To identify the links of the budgetary control system with performance
management and decision making processes within Sur.
 To give recommendation on the system based on findings of the study.
To achieve the objectives stated I would evaluate the budgetary control system
by dividing it in to its components i.e.
 Administration
 Preparation
 Control
Research questions
This study tries to address the following basic questions:
 How good was the budget administration in Sur?
 How good was the budget preparation in Sur?
 How good was the budget control in Sur?
Assessment variables
The following variables which are believed to be indicators of existence of good
budgetary control system and its links with the company’s performance
management and decision making process were considered:
 Does Sur have a budget committee, set a budget year, appoint a budget
officer, and conduct follow up?
 Does Sur communicate policies, determine key budget factor, prepare
budgets based on key budget factor, coordinate individual budgets, use
approved master budget as a benchmark? What type of budget does Sur
prepare?
 Does Sur produce performance reports, perform variance analysis, and how
frequent? Does Sur use feedback for performance evaluation and decision
making?
1.3. Overall research approach
Place of the research
An author (Oliver, 2004, p. 126) has discussed on the necessity of indicating
‘location for the research’. The research is being conducted within the
organisation in my office and for this I have already obtained the necessary
permission from the relevant authority.
Structure of the research Project
The structure followed for the Research Project is the one recommended by the
Oxford Brooks University as it is devised to enable students ‘demonstrate all of
the required technical and professional skills, and graduate skills in sufficient
depth’ (OBU Information Pack, 2008, p. 26); so I do not want to risk this
opportunity by developing another different structure which may or may not
demonstrate the stated quality.
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3. Scope
The project is limited to Sur Construction plc, covered 2007/2008 budget
year, and only the variables identified above were used to evaluate the
budgetary control system and its contribution to company performance
management and decision making. Capital budgeting and cash budget were
not covered.
Information Gathering
Type of Data used
Only secondary data were collected for my research project and both external
and internal sources of secondary information were used to evaluate the
budgetary control system for its design and implementation and also for its links
with the company’s performance management and decision making activities.
In case secondary data is not available on certain areas of the system
discussion and even oral or written interview with appropriate officials would be
conducted.
It is also necessary to mind that reliance on secondary data is wholly
acceptable by the Oxford Brookes University, so why spend more time in
collecting and evaluating primary data.
Sources of Data
(See Part 2 section 2.1)
Method of collecting
(See Part 2 section 2.2)
Analysis:
Data analysis will be made based on whether:
• Standard costing, i.e. forecasted resource price and usage, and cost
prediction methods were used
• Key budget factor was defined
• All employees participated in preparing the budget
• Activities were coordinated
• Master budget was agreed and authorised
• The budget was used as a benchmark
• Regular performance reports and variance analysis made
• Influence in enhancing performance management and decision making
• Purposes of the system were achieved.
Finally Conclusion and Recommendation will follow based on results of the
analysis made above.
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4. PART 2 - Information gathering and accounting/business techniques-1500
words
2.1. The sources of information from which relevant data obtained
The research mainly requires demonstration of skills of evaluating and
analysing of data collected. Besides, use of secondary data for the research is
acceptable by the Oxford Brookes University. As a result secondary data were
obtained from:
• literature reading materials i.e. books, articles and relevant resources in the
internet listed in the “references” section of this paper. These would be
sufficient enough to set criteria on which to base the evaluation
• internal information on the administration, preparation and control aspects of
the company’s budgetary control system would be sufficient enough to
understand the overall picture of the system and reach conclusion.
In case when secondary data were found to be inadequate or unavailable,
discussions were made with the cost and budget officer, the planning and
monitoring officer, with commercial and construction department heads, and the
general manager.
External Sources of information
 Relevant Literature books, articles and internet resources
Internal sources of information
 Company organizational Chart (See Appendix A)
 Formal letters of instruction to establish budget committee, letters of
appointment issued to individual members of the budget committee and
budget officer
 Company budget manual, budget policies, strategic or long-term plan, and
approved master budget for the year 2007/2008
 Periodic performance reports (monthly, quarterly and annually)
 Variance analysis on performance reports
 Minutes of meetings made to follow up budget implementation, to evaluate
performance and to make corrective and review decisions
 Documented decisions taken by management (minutes and letter of
instructions)
2.2. A description of the methods used to collect information, including online
access
In collecting information I followed the following steps:
1. Identify locations of sources of information
2. Reach locations to collect the information
3. Arrange appropriate safe custody for information collected
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5. 4. Return on completion of the research those sources of information back to
their location.
Location for external sources of information
Most of the Literature Books were collected from the British Council Library.
Books from friends and my own texts were also used for the research. The
ACCA Student Accountant was also an important source of published articles
on subjects that provide guidance on how to pass the RAP and on subjects
related to budgetary control and variance analysis techniques.
The internet particularly the www.accaglobal.com and www.google.com websites
were also very helpful locations for sources of relevant information. I have
downloaded The RAP information PACK , an important document that guides
how to approach the research, from the www.accaglobal.com and other internet
resources related to research methods were collected from the www.google.com
Location for internal sources of information
The following were among the most important internal sources of information
for the study:
 The commercial department is responsible for getting business for the
company and facilitates the planning and monitoring processes within the
company. Standard prices and usage of resources and total revenue for the
year were determined by this department.
 The planning and monitoring division which is under the direct
supervision of the Construction Department, maintained records related to
planning and control information on project contracts, was another major
source of information in relation to project plans and periodic performance
reports.
 The cost and budget division which is under the direct supervision of the
Finance Department Manager produced financial reports in relation to cost
of construction of each project contracts. The annual action plan for
2007/2008 was obtained from the finance department manager.
 The Human resources department is also an important location of
information sources such as the appointments of the budget committee and
the budget officer. Also sources of information in relation to performance
related pay is located in this department.
Reach locations to collect information
As I am a member of the British Council Library I borrow books for my
research. I have access to broadband internet service in my office.
In order to reach the locations of internally produced information I have formally
obtained permission from the general manager to have access to relevant
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6. information of the company. I personally discussed with the personnel in charge
of the locations I have identified above and therefore collected information I
needed for my project.
Arrangements were made to meet these individuals to discuss how and when
they could supply me the information I needed. I gave them a note of list of data
that I needed.
Arrange appropriate safe custody for information collected
I arranged a shelf with a locker and safely stored notes of discussions made
with different officials of the company and copies and original documents
obtained many of which I had to return to the providers after completion of the
research. The discussion notes and other documents collected were classified
by nature and location and filed in a box file.
Return of secondary information back to their location on completion of
the research
After completion of the study, I returned all documents and books collected
from the company, the British Council and other sources as promised. I kept
some copies of the aforementioned sources which are not restricted by
copyright for further references.
2.3. A discussion of the limitations of the information gathering
Listed below are some of the major limitations I observed and faced in
connection with the information gathering process i.e. use of secondary data as
source of information:
 Accuracy of information collected from the company itself cannot be
guaranteed as they are originally gathered by other people.
 Finance and construction departments produced separate profit and lose
statements for 9 months and their reports have differences.
 There were two different copies of budget manuals. None of the two
manuals were stamped as final. After a discussion with the finance
department manager this problem was solved.
 Differences in figures were also observed on planned project revenues
reported in the three year business plan compared with the annual action
plan.
 Annual financial reports were not finalised.
 Information gathering from the internet was easy but difficult to determine
the most relevant resource out of bulk of resources. Sometimes it was of
time taking activity compared to its benefit.
 Information collecting encountered me with different officials within the
company. Not all were comfortable with providing data to me as many of the
data were prepared by themselves.
 Another problem was that there was no formally documented students’
previous work on RAP which could have helped in assessing the overall
effort required and could have helped raise confidence.
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7. Also there was problem with some staff members in keeping the appointment
date to provide me necessary document. For example, the planning and division
officer was out of office for training.
2.4. Identification of any ethical issues that arose during information
gathering and how they were resolved
The ethical issues involved with my research project were mainly in relation to
integrity and confidentiality of information of the company.
Ethical issues related to integrity
 Conducting the research on Sur Construction plc
 Using company facilities such as personal computer, stationeries and my
office
Ethical issues related to confidentiality
 Disclosing information of Sur in my Research Project which can be accessed
by my examiners at Oxford Brookes University.
 Presenting my research to my mentor, an outsider.
 Keeping confidentiality of information
These were the ethical issues I tried to properly deal with. I obtained proper
permission from my employer in dealing with disclosure of information with in
my research project and uses of my employer’s resources.
2.5. An explanation of the accounting and / or business techniques you have
used, including a discussion of their limitations.
The accounting techniques and models the company will apply are:
 Standard costing: used to set standard costs and usage of resource to
enable prepare plan and evaluate performance against these standards.
Their limitation is that they are subject to changes caused by external and
internal factors.
 Responsibility Accounting: help assign tasks to a manager and make the
manager accountable for the task. It is however difficult to accurately
separate one activity of a manager from the other particularly in relation to
overhead costs.
 Percentage Completion Method: it is a method of calculating revenue for the
year based on actual costs incurred in relation to contract revenue. But it
has failures in accurately calculating revenue earned for the period because
actual costs incurred may not be equal to plan.
 Flexible budget and Variance analysis: help identify causes of deviations
and make accountability easier. Involve complex calculations and may be
are very costly to operate.
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8. I expect the company uses these techniques in preparing budget and evaluating
actual performances. My job in this case is to investigate whether these
techniques were adequately applied to support the preparation of budget and its
evaluation against actual results. In doing so I use analytical procedures,
comparison and examination methods.
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9. PART 3 - Results, analysis conclusions and recommendations-4000 words
Background of Sur Construction plc
Sur Construction is a private limited company established in January 1992 G.C.
and engaged in construction industry. The company’s current business involves
road, building and airfield construction. Sur is one of the biggest construction
companies in Ethiopia.
Sur is owned by EFFORT (Endowment Fund for the Rehabilitation of Tigray) a
rehabilitation local institution. At present, the company’s annual turnover is
approximately US$ 35million. It owned nearly US$ 30 million worth of medium
and large size civil construction and earth moving equipment.
Currently the company has 1600 permanent employees and about 6700
workers hired on daily basis. Currently it ran 15 projects, and 3 projects located
within Addis Ababa, the location of the company’s head office. 12 of the
projects are located in different parts of the country out of Addis Ababa.
On 26 March 2008, Sur Construction plc was awarded ISO: 1900:2000 by
Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) GmBH, which
certifies quality system to conduct Road, Building, Airfield, Hydro Power,
Irrigation and Water Supply.
In 2007/2008 the company was running 15 different projects comprising of 9
road projects, 5 building projects and an airfield project.
Company mission
 To perform its construction activities efficiently and effectively
 To understand customers’ need and ensure their satisfaction
 To ensure profitability for the owners
3.1. A description of the results you have obtained and any limitations
Information has been gathered in relation to the assessment variables identified
in PART I and the findings are presented in the following sections.
Administration of the budgeting process
The budget period of Sur Construction plc is 1st
July to 30th
of June. The
company has developed a budget manual through consultants known as
Tradesmen Engineering (pvt) LTD, an international company.
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10. With in the manual a number of policies and procedures concerning
administration and preparation of a budget are adopted. This manual also
indicated the necessity of forming a budget committee, a budget controller and
developing and reviewing a budget manual to help proper execution of
budgetary control within the company. However no budget committee as well
as budget controller were formed so far by the company.
Annual Action Plan Preparation
The company did not prepare a budget in 2007/2008 budget year. It rather
prepared company wide annual action plan which included detailed activities
that should be undertaken by each department without expressing the
resources requirement for departments other than the construction department
and the plan was not expressed in terms of money. The preparation process
should have been made following manner as the budget manual has indicated:
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1. Communication of planning policy
2. Key budget factor
3. Planned sales budget
4. Construction Plan
5. Preparation of individual annual plan
6. Review of individual annual plan
7. Acceptance of the agreed annual plan
8. Submitting the action plan to EFFORT for
final approval

11. 1. Communication of planning guidelines
The commercial department of the company conducted industry analysis and
gathered and recorded information on the market demand for construction,
level of competition, costs of materials, etc which was important for determining
contract cost when tendering for new incoming project contracts and for setting
target revenue and costs for existing projects.
The department organised the preparation of the company annual action plan.
In doing so the department had communicated to all responsible centres:
- the company three year business plan,
- cost targets for each construction activity of both building and road
contract projects. (See Appendix B)
2. Determining the principal budget factor (Key constraint)
Traditionally Sur started its action plan from forecasting the level of revenue to
be generated in the budget period. Therefore sales revenue was considered as
key budget factor. No limiting factor analysis was undertaken.
3. Planned Revenue Target
In its three year business plan the company determined the level of revenue to
be generated for the year 2007/2008. The plan considered:
 the information gathered in relation to the industry,
 the volume of work at hand,
 time of completion of existing project contracts and
 expectations of new contracts
 completion period of projects
Accordingly the revenue for the year 2007/2008 was forecasted to be
Br.650million which is Br.50million less than the forecast made in the three year
business plan. The decrease in planned revenue was because one project
contract was excluded from the annual plan.
An extract from the business Plan
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12. Table 1:
Three Years Company Goals on Yearly Basis (Amounts are In Ethiopian Birr)
Figures are in millions (Birr 000,000)
Serial
No. DESCRIPTION
BUDGET YEAR
TOTAL2007/08 2008/09 2009/10
1
PLANNED SALES FOR
EXISTING CONTRACTS 629.63 338.39 0.48 968.51
2
PLANNED SALES FOR
NEW CONTRACTS 70.37 461.61 999.52 1,531.49
TOTAL PLANNED SALES 700.00 800.00 1,000.00 2,500.00
YEARLY SALES GROWTH (%) - 14.29 25.00
3
PLANNED COST FOR
EXISTING CONTRACTS 614.47 318.55 0.44 933.46
4
PLANNED COST FOR
NEW CONTRACTS 63.33 415.45 899.56 1,378.34
TOTAL PLANNED COSTS 677.80 734.00 900.00 2,311.80
5
PLANNED PROFIT FOR
EXISTING CONTRACTS 15.16 19.84 .05 35.05
6
PLANNED PROFIT FOR
NEW CONTRACTS 7.04 46.16 99.95 153.15
TOTAL PLANNED PROFIT 22.20 66.00 100.00 188.20
PROFIT MARGIN (%) 3.17 8.25 10.00 7.53
7
FORECASTED NEW
CONTRACT ENTRIES 500.00 800.00 800.00 2,100.00
Amounts are in Ethiopian Birr
4. Construction Plan
The construction department ran 15 project contracts (9 road, 5 building and
one airfield projects) which were considered as a sub-responsibility centres
and each were accountable to the construction department manager.
Managers of the project contracts had produced and submitted their own action
plan to the construction department manager to be integrated into the
department’s plan.
Therefore construction department prepared the annual action plan that
showed detailed activities to be conducted and the physical resources required
to generate the forecasted revenue based on the revenue and cost targets
determined by the commercial department.
The department had listed all sorts of resources (Machineries of different types
and capacities, materials and manpower) required to execute the construction
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13. work but not planned as to the timing of delivery and not expressed in terms of
money (See Appendix C).
Following is a brief explanation of how the remaining major departments
prepared their annual plan.
5. Prepare initial annual action plan
In preparing the annual action plan all managers including lower level
managers participated in the planning process, the process followed was
bottom-up approach. The company applied responsibility accounting to
evaluate each department and service manager’s performance.
Each department and service within the company was considered as a
responsibility centre. Therefore each department and service was responsible
for the preparation of their own annual action plan and submitted their annual
plan to the commercial department. The commercial department combining the
individual annual plans together presented to the general manager for review in
the management meeting.
 Equipment Management Department
This department established targets such as available hours of machineries,
serviceability of machineries, hourly maintenance cost of machineries,
maximum number of accidents for machineries, and labour costs of involved.
But the plan did not indicate the total number of machineries in different
capacities needed for the year including the resources required in terms of
manpower, spare parts, fuel, etc to operate and maintain the Machineries.
 Logistics Department
The action plan of this department focused on setting the purchase and
distribution cycle of local and foreign procurement of materials and services.
That is the days that will be taken to purchase the materials or services
requested and distribute them to user departments. However, program of
purchases and distribution was not made at all. (See Appendix D)
 Finance Department
This department had indicated in its annual action plan that Ethiopian Birr 182
million cash deficit for the year 2007/2008 and identified possible sources of
finance. Out of which EFFORT (the owners) were expected to raise Birr
100million and sister companies (other companies owned by EFFORT) were
expected to raise Birr 47.5 million in the form of credit supply and services. Birr
32 million was expected to be obtained from external credit suppliers. The plan
however didn’t show in detail how it arrived at such cash deficit. The plan also
detailed the ongoing accounting activities to be done in the year without
preparing financial statements (See Appendix E)
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14. Table 2.
Working Capital Financing for 2007/2008 (Millions of Birr)
No. Type of finance Sources Amount
1 Capital injection EFFORT 100.00
2 Cement Credit Facility Messebo* 30.00
3 Iron-Bar Credit Facility Guna Trading* 15.00
4 Tyre Credit Facility Pirelli-Trans* 1.50
5 Transport credit TEPLCO* 1.00
6 machinery rent credit External Supplier
10.00
7 Other credit supplies External Supplier 10.00
8
Advance lease
purchase agreement
External Supplier
12.00
Total 179.50
Note: * Other Companies owned by EFFORT
The above table presented in a pie chart below:
Source of Working Capital Financing for the year
2007/2008 Amount in Birr (000,000)
147.50
32.00
1 Internal 2 External
 Human Resource Department
This department had set targets for manpower recruitment and turnover.
Recruitment duration in days was determined for different levels of positions
and the minimum rate of labour turnover was set.
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15. 6. Annual action plan submission, acceptance and approval (steps 5 to 8)
Finally after all departments and services delivered their annual plan, an agreed
and approved company annual action plan was produced and it was sent on
20th
of June 2007 to the management of EFFORT, the owner of Sur. EFFORT
approved the plan as final action plan for the year on August 2007.
Control
Performance reports were produced monthly, quarterly, semi-annually and
annually by all responsibility centres.
Construction works were the core tasks of the company. Project managers
were responsible to conduct daily monitoring in all aspects of their project
activities, and reported to each respective department at head office.
Projects’ construction work execution related performance reports were directly
submitted to the planning and monitoring division. Cost and accounting related
reports from projects were submitted to cost and budget division.
The divisions produced separate reports of profit and lose statement of all 15
projects and presented the combined reports to their respective department
managers. The reports produced by cost and budget division did not show
comparison of budget with actual results. It only reported what is actually
incurred cost against revenue calculated based on percentage completion
method.
The planning and monitoring division however produced comparison of actual
against planned works though it did not include detailed variance analysis to
identify causes of variances to support management decision making.
Comparison was made between plan and actual results, and arrived at
variance. The variance stated in both absolute and relative terms did not
consider changes in volume, price and usage. Therefore it was so difficult to
make managers accountable for failures in achieving plans as the reports were
not detailed enough in identifying causes and responsible managers to specific
variances. (See Appendix F)
Budget Review and corrective action
Actions are taken on an ad hoc basis not based on proper variance analysis
conducted by the company’s staffs. Also managers are not made accountable
for their actions taken.
3.2. A critical analysis / evaluation of your results which includes an
explanation of your significant findings
Budgetary Control
Budgetary control is concerned with ensuring that actual financial results
are in line with targets. An important part of this feedback process is
investigating variations between actual results and budgeted results and
taking appropriate corrective action (Collier, 2003, p. 225).
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16. A budget is a plan expressed in monetary terms covering a future time
period (typically a year broken down into months). (Collier, 2003, p. 207)
From this definition of a budget it can be concluded Sur didn’t prepare budget
for the year 2007/2008. But prepared a plan of physical activities to be
performed with in the year and divided into monthly action plans.
Budget Administration
‘It is important that suitable administration procedures be introduced to ensure
that the budget process works effectively’ (Drury, 2004, p. 596)
The Company budget manual has clearly stated the necessity of establishing
budget committee and budget controller (officer). It defined the roles and types
of officials that should be members of the committee and the budget officer.
However both the budget committee and budget controller were not appointed
to administer the budgeting process, as a result:
 No body within the company considered responsibility to enforce the
preparation and implementation of a budget
 Adequate planning couldn’t be enforced and a budget expressed in
monetary terms could have been prepared in the year.
 Coordination and communication of activities of departments within the
company could have been achieved
 The company failed to set benchmark against which to evaluate actual
performance
Budget Preparation
It was made clear above that Sur did not prepare a budget for the year
2007/2008. However, it was necessary to evaluate the existing budgetary
control system of the company based on literature.
Sur had prepared an annual action plan for the year 2007/2008 and analysis is
made on the information gathered to reach conclusion and give
recommendation.
♦ Policy Communication
The long-term plan is the starting point for the preparation of the
annual budget. Managers responsible for preparing the budget must
be aware of the way it is affected by the long-term plan so that it
becomes part of the process of meeting the organisation’s objectives.
(BPP Professional Education, 2006, p. 168)
Three year business plan and standard cost, an estimated unit cost built up of
standards for each cost element and usage of resources were communicated
to construction department and other departments to be used as a basis for the
preparation of their annual plan.
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17. ♦ Key budget factor and sales forecast
‘In every organization there is some factor that restricts performance for a given
period’ (Drury, 2004, p. 597)
This factor is known as limiting factor or key budget factor. Sur had not
conducted constraint resources analysis to identify the limiting factor before it
started preparing its annual plan. It determined sales to be the limiting factor as
a matter of traditional practice. However, during the budget year Sur faced
serious cash shortage and could not buy essential asphalt machineries and
construction materials as needed. This caused to the company both financial
and reputation damage.
Had proper limiting factor analysis been conducted and the limiting factor
identified and the annual plan was based on the identified factor Sur would
have been able to revise its forecasted revenue to a more realistic forecast
reducing its commitments to the maximum level of cash resources Sur could
have generated and also would spend the limited cash resource on activities
that give highest contribution per unit of limited resource.
As a result the forecasted revenue of Birr 650 million for the year was much
exaggerated compared to the actual revenue achieved Birr 425 million, which is
only 65%, as reported by the construction department in the annual report (See
Appendix G).
♦ Construction plan
When the sales budget has been completed, the next stage is to prepare
the production budget. This budget is expressed in quantities only and is
the responsibility of the production manager. The objective is to ensure that
production is sufficient to meet sales demand and that economic stock
levels are maintained. (Drury, 2004, p. 604)
Normally units of construction works are measured by types of activities such
as excavation and earth work, concrete ancillaries, masonry work etc relevant to
building construction and clearing and grubbing, drainage, demolishing, removal
etc relevant for road (see Appendix H) involved in each construction types-
road, building and airfield.
The construction department failed to prepare plan of total units of construction
activities for 2007/2008. This hindered reasonably accurate determination of
materials, machineries and labour usage for the year.
However, the department had determined the total quantities of usage of
materials, machineries and labour needed for the year without indicating how it
arrived at such quantities of resources requirements. Also it did not indicate the
level of ending inventories required during the year for each type of resources.
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18. ♦ Direct Materials Purchase Plan
‘The raw materials budget is necessary to ensure adequate materials are
available to meet the production needs on a timely basis’ (Berry, 2006, p. 226)
The logistics department did not prepare material purchase plan. The possible
reason could be as the logistics manager explained the material requirements
prepared by the construction department were not time scheduled and their
accuracy was not reliable because there was no proper plan of the unit volume
of construction works.
It was also difficult to prepare direct labour and overhead budgets because
unit volume of construction work was not determined. However, selling and
administrative costs were planned based on past performance.
As a result the total material usage forecasted by the construction department
remained unchanged into monetary requirements. Therefore sufficiently
detailed and integrated company annual plan (master budget) could not be
produced in the 2007/2008 budget year and financial performance indicators
such as ROCE percentage, profit margin, and liquidity ratios could not be
determined to evaluate the company’s financial performance.
Control
At this point the budgetary control system would be evaluated for its links with
the company’s performance management and decision making.
Existence of appropriate budgetary control system would have helped to
provide benchmarks to be achieved in terms of financial and physical objectives
with in the budget period; and helped financial objectives to be expressed in
absolute terms as well as in relative terms. Amount of sales volume and profit
level could have been determined and then a budget prepared. Relative
measures such as financial ratios could have been set for that year to measure
managements’ performance.
Budgetary control could have been helped to set measures in terms of physical
targets such as kilometers of roads, materials and labour usages. Based on
such measures the budgetary control system, supported by adequate cost
accounting records, would have provided benchmark against which managers’
performances would be measured. In that the system would have served as
part of the performance management system.
By giving feedback on deviations it would have supported management to
focus on problem areas (management by exception) rather than try to control
all aspects of operations that went smooth. The feedback from a budgetary
control system would have contributed a lot to management decision making
either by enabling them to enhance or correct future performances.
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19. The two separate main performance reports used for control were one
produced by construction department and the other by finance department.
Periodic revenue and cost performance reports produced by construction
department were made based on engineers’ estimated executed construction
works. The same report produced by finance department was based on
percentage completion method. These reports for the same period had material
differences in amounts. The construction department relied on its own records
in producing information on revenue and cost, and produced its own profit and
loss statement for each project contracts and never used the cost accounting
records of finance department believing that it did not produce accurate
information.
Flexible budget enable us make a more valid comparison between the
budget (using the flexed figures) and the actual results. Key differences,
or variances, between budgeted and actual results for each aspect of the
business’s activities can then be calculated (Atrill and McLaney, 2007, p.
213).
However the comparisons of plan versus actual performance made by the
construction department did not assume changes in volume and price.
Therefore flexible budgeting was not applied by the company in comparing
actual results with plan. Also variance analysis was not used at all. Therefore
no valid comparison of actual against planned performance could be made and
the planning process of the company failed to support performance
management and decision making of the company.
The company’s finance department produced reports only on actual revenue
and costs because there was no budget prepared for comparison.
3.3. Your conclusions about your research findings and how well you have
met your project objectives and research questions
Strength
The company developed a budget manual, which contains detailed policies and
procedures on budget administration, preparation and implementation.
The company also obtained experience in developing a three year business
plan for the budget years 2007/2008, 2008/2009 and 2009/2010. Standard
costs and usage of resources were also established for the year 2007/2008 and
communicated to all departments and services. Though the business plan and
the standards set failed to serve their purpose in helping the planning and
control process.
Weakness
The budget manual was not implemented at all. And the annual plan was full of
assumptions that never based on the company’s reality in terms of available
resources in the short term; as it did not perform scarce resource (limiting
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20. factor) analysis to identify the company’s reality in terms of the limiting factor
and make best use of scarce resources.
Also unit volume of construction work for the year was not determined by the
construction department. Even the haphazard forecast of total resources
requirement included in the annul plan of the construction department was not
planned as to their timing when they should be made available to the
department causing other departments not to properly plan their support
activities to the construction department. For example, the logistics department
could not determine materials purchase plan (budget) and the finance
department could not determine the level of financial resources to be made
available at the right time and in the level of amount required.
The planning and control process was weak in that adequate benchmark could
not be put in place. The support that would have been provided by the
budgetary control system in enhancing the company’s performance
management system and decision making process failed to be achieved.
Effect
The company failed to enforce adequate preparation and implementation of a
budget by not giving due management attention to the issue and by not
appointing budget committee and budget accountant who could have facilitated
this. Therefore the company could not produce a budget in the year 2007/2008.
This in turn resulted in disintegration of the activities of the departments
causing each department to mind only its own activities rather than coordinating
to achieve common company goals. Also causes disputes among departments.
For example, there were instances in which it was difficult to identify
responsible manager for a delay in supply. Such an environment also created
lack of motivation in many of the managers in the company.
Lack of scarce resource analysis also caused the company to forecast an
exaggerated volume of sales compared to its available financial resource and
skilled and capable manpower (e.g. poor planning). This was another source of
less management motivation as the revenue target was unachievable.
Not exercising proper monitoring and control activities also caused
management not to access proper feedback on performance resulting weak
decision making and poor performance management. This was substantiated
by the poor cost-revenue relationship.
Conclusion
In conclusion the company’s budgetary control system was weak in its design
and implementation and failed to achieve the very purposes of the system such
as compel planning, facilitate communication and coordination and managers’
motivation.
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21. As a result the system as part of Sur’s performance management failed to
enhance managers’ performances and decision making.
The information gathered and analysed were sufficient enough to answer my
research questions on the selected three main criteria i.e. administration,
preparation and control. The conclusion reached also was based on the
findings observed therefore I believe my research objectives were reasonably
answered.
3.4. If appropriate, recommendations on specific courses of action to
identified individuals within your chosen organisation.
Recommendations
To the company’s General Manager
Budget Administration
Appropriate management attitude and attention would help design and
implement adequate budgetary control system in the company.
Preparation
The general manager has to make sure timely preparation of budgets, as
chairman of the budget committee.
Control
Enhancement in the budget administration and preparation would improve
control. Attention has to be given to improve the cost accounting records.
The improvement in the budgetary control system is to aid the general
manger’s ability to manage performance and make informed decision.
Therefore it is necessary for the general manager to emphasize in adopting
adequate budgetary control system.
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22. References
 Atrill, P. and McLaney, E. (2007) Management Accounting for Decision
Making. Madrid: FT Prentice Hall –Financial Times.
 Berry, Leonardo Eugene. (2006) Management Accounting DeMYSTiFied.
USA: McGraw-Hill Companies.
 BPP Professional Education. (2006) Financial Management and Control-2.4.
Great Britain: BPP professional Education.
 Collier, M. Paul. (2003) Accounting for Managers. Great Britain: John Wiley &
Sons Ltd.
 Drury, C. (2004) Management and Cost Accounting. China: Thomson
Learning.
 Oliver, P. (2004) Writing your thesis. Great Britain : SAGE Publications.
Bibliography
 Charles T. Horngren, Srikant M. Datar and George Foster. (2003) Cost
Accounting a Managerial Emphasis. New Jersey: Pearson Education
International
 Charles T. Horngren, Gary L. Sundem and William O. Stratton. (2002)
Introduction to management Accounting. New Jersey: Pearson Education Inc.
 Eddie McLaney and Peter Atrill. (2005) Accounting an Introduction. Madrid:
Pearson Education Limited.
 FTC Kaplan Limited. (2007) Advanced Performance Management (APM):
Paper P5. Great Britain: KAPLAN Publishing.
 Graham Holt. (2003) ‘Research and Analysis: a formula for success’, Student
Accountant, October, pp. 24-26.
 Shane Johnson. (2005) ‘Beyond Budgeting’, Student Accountant, March, pp.
68-71.
 Shane Johnson. (2005) ‘how not to rap’, Student Accountant, June/July,
pp.26-28.
 Swetnam, Derek. (2004) Writing your Dissertation. Trowbridge, Wiltshire:
How To Books Ltd.
Internet Sources Used
 Chapter objectives
 www.accaglobal.com
 www.socialresearchmethods.net/kb/
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23. POWER POINT PRESENTATION
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